FINANCIAL MARKETS : Blue-Chip Rally Falters; Yields Slide on Report

A late spree of computerized selling erased a strong rally in blue-chip stocks Wednesday, while bond yields fell back for the first time in three days on an unexpected report of economic weakness.

The closely watched Dow Jones industrial average, which gained as much as 23 points early in the session, ended the day up just 0.68 point at 3,739.23.

Broad market indexes were mostly weaker, with the New York Stock Exchange’s composite index off 0.49 point at 248.41, the Standard & Poor’s 500-stock index off 1.48 points at 453.69 and the Nasdaq composite index down 1.16 points at 750.32.

But the American Stock Exchange’s market value index edged up 0.77 point to 433.86.

On the NYSE, advancing issues led declines by a margin of nearly 5 to 4. Big Board volume totaled 300.48 million shares, up from 286.62 million on Tuesday.

Stocks got support for most of the session from the bond market, where the Treasury’s 30-year bond yield retreated to 8.0% from Tuesday’s 8.03% after a government report of weaker-than-expected factory use suggested some economic weakness. Its price, which moves in the opposite direction, rose 11/32 point, or $3.44 per $1,000 in face value.

Yields initially rose after the Commerce Department said the gross domestic product rose at a 3.9% annual rate in the third quarter, 0.5 percentage point higher than an earlier estimate. Inflation measures in the report also rose.

But prices rose after the government said factories weren’t operating as close to their limits as initially thought.

Earlier capacity utilization rates showed factories running at 84.9% in October. The government revised that number downward to 84.6%.

The lower utilization figure was seen as anti-inflationary and lifted the market.

Traders said the early rally in stocks amounted to a continued technical rebound after last week’s market rout, which saw the Dow average plunge 137 points in two days.

But the rally lacked conviction, said Larry Wachtel, market analyst at Prudential Securities. “No one is convinced that we’re out of the woods by any means,” he said. “You do have some overselling and some seasonal bias to the upside, but this is still a market that is driven by concern about a Fed tightening, about a too-strong economy.”

The stocks of economically sensitive companies, which took the brunt of the losses last week, rose as the strong economic data suggested the economy is still growing, traders said.

* Among the 30 Dow index components, United Technologies was up 1 at 58 1/2, International Paper rose 7/8 to 71 1/2 and Union Carbide added 7/8 to 28 5/8.

The stocks of international companies benefited from the ratification of the GATT international trade treaty on Tuesday by the U.S. House of Representatives. The Senate is expected to vote on the measure today.

“If the Senate ratifies, I think you’ll see a follow-through with stocks,” said Hildegard Zagorski, market analyst at Prudential Securities.

The strongest beneficiaries of the optimism on GATT were chemical stocks. In addition to Union Carbide, Dow Chemical rose 1 to 64, Goodrich added 3/4 to 44 1/2 and Monsanto rose 1 1/8 to 72.

* Among cyclicals, Weyerhaeuser rose 1 1/2 to 38 3/8.

* Chrysler gained 1 to 48 1/2 amid expectations that its board will raise the common-stock dividend at a meeting today.

* Texaco rose 1/8 to 62 1/8 and Apache jumped 2 7/8 to 28. Apache and Texaco said they reached an agreement under which Apache will buy more than 300 Texaco oil fields for $600 million.

* Lotus Development rose 3 to 44 3/4 on renewed market rumors that Oracle Corp. was preparing to make a bid for Lotus. Both companies declined to comment, citing policies against discussing market speculation. Oracle was off 1 3/8 at 41 1/4.

Overseas stock markets were higher. Tokyo’s 225-share Nikkei average closed at 19,075.62, up 149.13 points, while Frankfurt’s 30-share DAX average edged up 3.98 points at 2,048.26. In London, the Financial Times 100-share average gained 20.3 points to close at 3,081.4.

Mexico’s Bolsa index closed 4.82 points lower at 2,591.34 after President-elect Ernesto Zedillo made some surprise Cabinet appointments. Telefonos de Mexico’s American depositary receipts fell 1 3/8 to 52 7/8.

Silver futures, meanwhile, hit their lowest level in nearly a year when a price slide linked to waning inflation fears steepened dramatically. Gold futures also fell.

Silver led a broad decline in commodity prices that lowered the Commodity Research Bureau’s index of 21 commodities 1.35 points to 229.23.

Silver for December delivery dropped 14.9 cents on the New York Merc to $4.896 an ounce, the lowest daily settlement for near-term deliveries since Dec. 7, 1993. December gold fell $1.30 to $380.70 an ounce.

Elsewhere, the dollar ended slightly lower in foreign exchange trading.